Opinion

Make the most of participant disclosures

Deadlines for retirement plan participant disclosure regulation are coming up fast. Are you prepared to take advantage of this opportunity?

Yes—opportunity. By helping retirement plan sponsors comply with the regulation and manage communications to participants, you can position yourself as a trusted financial professional with critical expertise.

Make sure to do your homework, though. In addition to helping plan sponsors stay on the right side of the law, you’ll also need to prepare them to respond to questions from participants. And, if you conduct group or one-on-one meetings with participants, you’ll need to be prepared to answer questions yourself.

As an illustration, our Participant Disclosure Regulation Resource Center can serve as a resource. It provides step-by-step instructions to help with compliance, along with sample materials to educate and communicate with employees.

About the new regulation

The ERISA section 404(a) participant disclosure regulation requires that workers be given access to the information they need—including information about the plan, fees and investment options—to make informed decisions. The regulation also calls for:

  • The delivery of investment-related information in a format that allows workers to compare the investment options under the retirement plan
  • That plan fiduciaries use standard methods when calculating and disclosing investment expense and return information
  • A new level of fee and expense transparency

The first of these annual notices are due from most plan sponsors on August 30. The actual dollar amount of fees charged to participant accounts above investment expenses will, for most, start showing up on participant statements in October.

How to prepare

Doing some legwork in advance will help you gather the details you need to make the most of this opportunity. Follow these steps:

  • Determine how your fees will be treated under the rules. Will there be new disclosure of your compensation to participants? If so, understand how the compensation will be disclosed to plan fiduciaries and participants. 
  • Determine how fees are paid for the retirement plan. Help the plan sponsor understand how the different components of fees will be illustrated in the annual notice and quarterly statements based on how they’ve decided to pay for fees.
  • Understand what services are available to participants. This is an opportunity to showcase services of which participants may not be aware.
  • Identify the questions about retirement plan investment options and investment menus that participants are likely to have as a result of the new comparative chart.
  • Recognize that participant investment behavior may change as a result of the new disclosures. Determine how that might affect your work with the plan and its participants.
  • Understand the  need to give at least 30 days advance notice to participants when plan, investment or fee information changes.

 Educating participants

Of course, the fees themselves aren’t changing as a result of the regulation. The only change is to how information about fees and services is displayed.

However, with all the attention and focus on fees, there’s a risk that some participants could make decisions based only on fees—without considering their diversification needs and long-term goals. That’s why proper education and context is so important. 

Start by helping participants understand everything they get for the fees they pay. For instance, fees may pay for investment expenses, administrative expenses to operate the plan, statements participants receive, access to a website, call center, personalized education  and charges for specific services or transactions (such as taking a loan).

This is also a good time to reinforce to participants how they benefit by having access to a retirement plan at work that is sponsored voluntarily by their employer.  In addition to the discipline of automatic enrollment, they can benefit from tax deferred savings, access to professionally managed investment options with no minimum investment, worksite education, employer fiduciary oversight and often an employer match.

Emphasize that fees shouldn’t be the sole reason for participants to change their retirement allocation or goals. Explain that the lowest-fee investment on the comparison chart may not always be the best for their long-term goals and risk tolerance.  And above all, use this as an opportunity to encourage participants to check out whether they are on track for adequate retirement savings.  Encourage them to run a retirement calculation, set goals and have a plan for reaching them.     How much they save can be one of the biggest impacts on whether they will have enough to live on when they retire.

For help with tough questions, visit our Assessing Retirement Plan Value hub. 

A smart investment of your time

Educating yourself now about the new regulation can pay big dividends for you. Financial professionals who thoroughly understand the regulation can respond to questions with confidence—and help their plan sponsor clients do the same.

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